Japanese car makers Nissan and Honda announce plans to merge

The two companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors had also agreed to join the talks on integrating their businesses. 

"We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a wider customer base," Nissan's CEO Makoto Uchida said in a statement. 

Car makers in Japan have fallen behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time. 

Shares climbed on earlier rumours

News of a possible merger surfaced earlier this month, with unconfirmed reports saying that the talks on closer collaboration partly were driven by aspirations of Taiwan iPhone maker Foxconn to tie up with Nissan, which has an alliance with Renault SA of France and Mitsubishi. 

A merger could result in a giant company worth more than $50bn (€48bn) based on the market capitalisation of all three car makers. Together, Honda and the Nissan alliance with France's Renault SA and smaller car maker Mitsubishi Motors would gain scale to compete with Toyota Motor Corp. and with Germany's Volkswagen AG.

Toyota has technology partnerships with Japanese car makers Mazda and Subaru.

Even after a merger Toyota, which rolled out 11.5 million vehicles in 2023, would remain the leading Japanese car maker. If they join, the three smaller companies would make about eight million vehicles. In 2023, Honda made four million and Nissan produced 3.4 million. Mitsubishi Motors made just over one million. 

Nissan, Honda and Mitsubishi announced in August that they would share components  for electric vehicles such as batteries and jointly research software for autonomous driving to adapt better to dramatic changes centred around electrification, following a preliminary agreement between Nissan and Honda set in March.

Honda, Japan's second-largest car maker, is widely viewed as the only likely Japanese partner able to effect a rescue of Nissan, which has struggled following a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets, allegations that he denies. He was eventually released on bail and fled to Lebanon. 

Speaking Monday to reporters in Tokyo via a video link, Ghosn derided the planned merger as a "desperate move".

The advantages of joint venture

From Nissan, Honda could get truck-based body-on-frame large SUVs such as the Armada and Infiniti QX80 that Honda doesn't have, with large towing capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.

Nissan also has years of experience building batteries and electric vehicles, and gas-electric hybird powertrains that could help Honda in developing its own EVs and next generation of hybrids, he said. 

But the company said in November that it was axing 9,000 jobs, about 6% of its global work force, and reducing its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen (€58.6m). 

It recently reshuffled its management and Makoto Uchida, its chief executive, took a 50% pay cut to take responsibility for the financial woes, saying Nissan needed to become more efficient and respond better to market tastes, rising costs and other global changes.  

Credit outlook downgraded

Fitch Ratings recently downgraded Nissan's credit outlook to "negative", citing worsening profitability, partly due to price cuts in the North American market. But it noted that it has a strong financial structure and solid cash reserves that amounted to 1.44 trillion yen (€9bn).

On Monday, Nissan's Tokyo-traded shares gained 1.6%. They jumped more than 20% after news of the possible merger broke last week. They had fallen to to the point where they were considered something of a bargain. 

Honda's shares climbed 3.8% on the news. Honda's net profit slipped nearly 20% in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.

The merger reflects an industry-wide trend toward consolidation. 

At a routine briefing Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on details of the car makers' plans, but said Japanese companies need to stay competitive in the fast changing market. 

"As the business environment surrounding the automobile industry largely changes, with competitiveness in storage batteries and software is increasingly important, we expect measures needed to survive international competition will be taken", Hayashi said.